Turnaround? Sears Sees Rise in Earnings (SHLD, WMT, TLB, TIF)

Sears Holdings Corp. (NASDAQ: SHLD) today reported same-store sales and estimated net income for its fourth fiscal quarter ending January 29th. Same-store sales at Kmart and Sears stores were off a combined -1.7% for the month of December, off -1.1% for the quarter to date, and off -1.6% for the year to date. But the company raised its income estimates for the quarter and for the year substantially above analysts’ estimates.

For the quarter, Sears expects EPS of $3.39-$4.12, compared with previous estimates of $3.09, and for the year Sears estimates EPS of $1.16-$1.88, compared with estimates of $0.91. Something does not add up. Where is Sears generating all those profits even as sales are down?

Wal-Mart Stores Inc. (NYSE: WMT) was downgraded yesterday by Goldman Sachs from ‘buy’ to ‘hold’. The Talbots Inc. (NYSE: TLB) said this morning that it expects an EPS loss of -$0.15 to -$0.19 for its fourth quarter, while analysts were expecting a loss of -$0.02. Does that look like good news for retailers? High-end jeweler Tiffany & Co. (NYSE: TIF) noted a same-store sales boost of 8% for its holiday season, and estimates adjusted EPS of $2.83-$2.88, above its previous estimates of $2.72-$2.77. Analysts were expecting EPS at the high-end of the old estimate.

So the rich are spending again, and the not-so-rich aren’t. At Sears, in the first quarter of this fiscal year, the company reported flat revenues and an increase of 1.5% in same-store sales. Margins were down by $100 million. In the second quarter, Sears reported sales were down by $93 million and that same-store sales fell by -2.2%. Margins rose by $28 million. In the third quarter, Sears posted a sales drop of $512 million and a -4.8% fall in same-store sales. Margins were down $214 million in the quarter.

Sears has benefited from the currency exchange rate on its sales in Canada, where the Canadian looney has been quite strong compared with the greenback. The company has also lowered its expected effective tax rate from 40.6% in the third quarter to 32% in the fourth quarter. Both of these items will boost the company’s bottom line.

Sears is basically selling less and enjoying it more. The company is also not expected to do much, so anything above the very low expectations looks like a win. For example, the company expects net income of $130 million to $210 million for the full fiscal year. Last year, the company posted net income of $235 million. And this year is supposed to be a winner?

Sears shares are up more than 10% this morning, at $78.18, well within the stock’s 52-week range of $59.21-$125.42. Talbots shares are down about -17.5%, to $6.25, after having set a new 52-week low this morning of $6.04. Wal-Mart is up fractionally, and Tiffany is also up 0.3%, at $61.12, in the neighborhood of the top of its 52-week range of $35.81-$65.76.

Paul Ausick